Cath Lab Digest

Massachusetts the Site of Latest Clash over Premiums

Although 4 of the state’s largest health insurers posted first-quarter losses that they attributed mostly to Governor Deval Patrick’s efforts to slow premium growth rates for individuals and small businesses, the Massachusetts Division of Insurance is holding firm on its decision to deny insurers’ requests for premium increases. Insurers challenging the rejections assert that premium increases are a direct and necessary result of the rising cost of medical care and say the denials amount to arbitrary price controls. With the Bay State rate battle being waged in administrative hearings and lawsuits, critics of recently enacted national healthcare reforms say Massachusetts is a harbinger of what is in store when new federal healthcare laws are implemented nationwide.

In May, >$100 million in first-quarter losses reported by Blue Cross and Blue Shield of Massachusetts (BCBSMA), Harvard Pilgrim Health Care, Tufts Health Plan, and Fallon Community Health Plan were attributed to the insurers’ inability to update premiums. Three of the insurers had to tap into their reserve funds. The rate denials were not announced by the Division of Insurance until after the first quarter, but accounting rules require the insurers to immediately record the expected future losses.

BCBSMA reported a combined after-tax net loss of $65.2 million for the first quarter. The insurer said that $55 million of this loss is a required accounting treatment that reflects the decision by the state Division of Insurance to disapprove adequate premium rates in the individual and small group markets.

“The $55-million loss reflects that 2009 rates are being charged for coverage effective in April, May, and June 2010, and these premium rates are inadequate to cover the actual cost of health benefits for customers in the small group and individual market,” said Allen Maltz, chief financial officer of BCBSMA.

In an interview with First Report – Managed Care (FR-MC), Jay McQuaide, vice president of BCBSMA, said the negative impact of the rate caps for the company is about $20 million per month. “By imposing these price caps on our premium rates in the individual and small group market, at the moment we’re charging 2009 rates, which are essentially deficient by between 15% and18%. We don’t view this as a sustainable solution.”

Harvard Pilgrim Health Care reported a net loss of $27 million, $21 million of which was attributed to the Division of Insurance’s rate refusals. The company warned of deeper financial losses if the state continues to reject requests for rate increases. “We will be relying on our reserves to continue to meet our current obligations to our customers,” said James DuCharme, chief financial officer of Harvard Pilgrim.

Mr. DuCharme referred to reports recently issued by the Massachusetts attorney general and Massachusetts Division of Health Care Finance and Policy, which show that increasing prices charged by providers for medical services are the primary drivers of healthcare costs, accounting for as much as 75% of the increase in recent years.